In the excerpt below, Levine gets the central importance of health to the government budget correct. He misses the fact that the problem is one of rising health care costs and that this is a problem regardless of whether the government pays for them or private citizens pay for them. Levine dislikes the Obamacare plan, but it does reduce the cost of Medicare and reduce the long-run deficit by raising taxes and lowering payments in Medicare. Levine would prefer to privatize Medicare (the Paul Ryan plan) and save money by paying less for vouchers over time which would force senior citizens to either pay more on their own than they currently do or do without.
The ongoing debt-ceiling debate (unlike most past increases of the debt ceiling) has involved negotiations about various avenues to deficit reduction. That’s not only because Republicans have the leverage to demand something in return for raising the limit, but also in large part because the debate comes amidst grave worries about our mounting debt, and warnings from creditors and rating agencies about where it’s headed.
The warnings are based on the unprecedented projected trajectory of the debt. Here is how the CBO sees it going, compared to the scope of our national debt in the past:
The debt will be larger than our entire economy in just a decade (a level we have experienced only once, very briefly, in the immediate wake of World War II) and will continue to grow very quickly into utterly unchartered territory.
The debate about policy changes attached to the debt-limit increase is supposedly about how to avoid this fate. But in fact, the debate has had basically nothing to do with the causes of that trajectory. Because our budget debates look ten years into the future (since congressional budget rules require ten-year budgets), we have been able to sustain the illusion—on the left and on much of the right—that what we’re dealing with is a familiar kind of public finance problem, if on a larger scale than usual: We have had an explosion of discretionary spending in the past few years combined with increases in entitlement spending, and taxes have not risen to match, and so we’re debating whether to cut spending down to the levels of our tax revenue, to raise taxes to match the spending explosion, or to do some combination of the two. That’s the familiar fiscal debate—everybody knows his part, and has basically played that part this year. It’s an important debate. But it is the debate of yesterday’s and today’s debt problem, not tomorrow’s debt problem—not the medium and long-term problem that is the source of that crazy debt trajectory that has everyone worried.
Simply put, [the real] debate [should be] all about health-care entitlements. And I mean all. Last month, the Congressional Budget Office released its most recent long-term outlook document (from which the chart above is taken), and with it they released the underlying data tables they used to produce their projections (which you can find here). Here’s a quick chart based on those tables, showing the components of federal spending over the coming decades:The red line consists of the health-care entitlements: Medicare, Medicaid, SCHIP, and the new Obamacare entitlements. The blue line consists of everything else combined—including Social Security, defense, domestic discretionary spending; everything but interest on the debt.
Looking at a chart like this, the eye naturally jumps to the point where the two lines intersect—and it’s true: starting in the 2050s, CBO projects that health-care spending will be greater than all other non-interest spending combined, and the federal government will basically be a health insurer with some unusual side ventures like an army and a navy. But the important thing to note here are the trajectories of the two lines. Total health-entitlement spending today is 5.6 percent of GDP. By just 2035, it will be more than 10 percent, while all other federal spending combined will actually declineas a percentage of GDP (from roughly 17 percent today to 14.5 percent), because it will grow more slowly than CBO’s projection for economic growth. By 2050, health spending will be up to 13 percent of GDP, and all other spending combined will decline further (to 14 percent).
Now, CBO’s notion that all other spending will decline as a share of the economy is based on some fairly rosy projections for economic growth, which are unlikely to materialize if (as they also project) our debt will balloon to more than twice the size of our economy in that period.
In the short-term debate we are now engaged in, we are fighting about ways to reduce deficits with lower discretionary spending or higher taxes—basically using non-health spending to offset some of the growth in health spending in the hope of keeping overall deficits and debt under control for a little while longer. But in the medium and long term, there is no hope whatsoever of doing this. It is absolutely impossible to raise taxes fast enough or high enough to keep up with this growth, and while other entitlement and discretionary cuts can buy a little time there is really nothing we could do on that front that would effectively avert disaster, both for the health-entitlement programs and for the economy. As President Obama himself said earlier this month, “If you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.”
A currently popular proposal for reducing government health expenditures is to raise the Medicare eligibility age from 65 to 67. The idea is that one reason health costs are going up is that lifespan is going up. There are a couple problems with this. First, life expectancy has not risen much for half of Americans who are below the median income. Secondly, it would actually raise health expenditures for America by shifting them from cheap Medicare program to expensive private health insurance. Austin Frakt estimates that it would increase private costs $2 for every dollar of Medicare savings.
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